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HMRC introduces errors into people's tax returns

The taxman is introducing errors into self-employed individuals’ tax returns, resulting in their failure to pay sufficient National Insurance, leading accountants have claimed.

The errors relate to changes to the NI system announced by the previous government. From April 2015, workers’ “Class 2” National Insurance contributions have been declared on self-assessment tax returns. Previously they had been paid to HMRC by direct debit.

The £2.80 per week charge is supposed to be paid by all self-employed individuals and partners in partnerships, and counts towards individuals’ entitlement to state pension and maternity leave.

But many taxpayers now find that where they submitted tax returns that correctly reported their Class 2 NIC liability, HMRC is actively “correcting” such returns by removing the Class 2 NIC liability. This appears to be “because the self-assessment system does not expect it to be paid”, accountants speculated.

George Bull, a tax expert at accounting firm RSM, said he and his colleagues initially detected a few cases of this error and were now seeing new incidences emerging on a “daily basis”. It was not affecting every self-employed individual’s return, Mr Bull said.

HMRC’s frontline staff have acknowledged the errors to accountants, and say they are due to a “technical fault” with HMRC systems that has been “reported internally”.

The concern is that individuals will either not spot the “correction” made by HMRC or believe that the removal of NI contributions from their return is correct. “The problem is self-employed who file who see an adjustment coming through, which is probably in their favour and small – the risk is they will breathe a sigh of relief and think they don’t owe HMRC any more and leave it at that,” said Mr Bull.

“Then after 30 days, on the face of it, the whole thing is final. The issue is not so much the repayment itself, but the fact that if the NIC record is amended to show zero contributions for a year, people risk losing benefits as their record will become incomplete.”

Of greatest concern is workers’ entitlement to a state pension. Individuals need 35 years of NI contributions to be entitled to the full state pension.

HMRC initially denied the problem. It later admitted the errors, but claimed that they affected only a “handful of people”.